As part of our growth strategy in unconventional Canadian
resource plays, we have 199 net sections of undeveloped
land in an emerging Devonian shale gas play in the Horn
River Basin in northeast British Columbia. Shale gas is
natural gas produced from reservoirs composed of organic
shale. The gas is stored in pore spaces, fractures or absorbed
into organic matter. Currently, the United States is the
largest producer of shale gas. In this Form 10-K, our shale
gas operations in northeast British Columbia are reported
with our conventional operations in Canada.
Shale gas complements our corporate oil and gas portfolio,
which consists predominantly of large-scale, capitalintensive,
long cycle-time projects. It provides natural gas
exposure and relatively short cycle-time projects, where we
control the scale and pace of development of the resource.
In addition, the time required to evaluate drilling and testing
results is relatively short. Once our commercial well design
is established, we can match the pace of drilling to prevailing
economic conditions.
As previously announced, we have approximately 90,000 acres at Dilly Creek in the Horn River basin and 38,000 acres at Cordova. Our Dilly Creek lands contain between 3 and 6 trillion cubic feet (0.5 to 1.0 billion barrels of oil equivalent) of recoverable contingent resource, assuming a 20% recovery factor. Following our success at a June land sale, we have increased our position from 128,000 to over 300,000 acres of highly prospective shale gas lands in northeast British Columbia. We have recognized minimal reserves as
we are investing primarily to gain understanding of the optimal
commercial development and the resource characteristics.
We have drilled eight horizontal wells with six wells
completed to date. Initial production test results are meeting
expectations in terms of resource, initial production and
decline profile. With five shale gas wells on stream at
various times, we reached production of over 15 mmcf/d
during the year before declining as expected. Our land
position here could support between 500 and 700 wells.
Substantial cost savings and productivity improvements
were realized in our 2009 drilling and completion program.
We took advantage of learnings from prior activities to
improve equipment utilization, drill longer wells and initiate
more fracs per well. All 26 fracs put into the last three wells
were successful.
Primary tenure in the Horn River Basin is four years and
drilling activity and extensions increase this up to 18 years.
Our drilling activity to date has allowed us to secure tenure
for 10 more years on the majority of our Dilly Creek lands.
Only two more wells are required to secure the remainder.
With tenure secured, we have the ability to slow the pace of
drilling during periods of low gas prices.
In 2010, we plan to continue our drilling, completions and
fracing program, expand infield facilities and start investing
in long-term infrastructure. We will continue to build on our
success, which we expect will lead to further cost savings
and productivity improvements. In late 2009, we began work
on an eight-well test program, which is expected to start
providing results and production in late 2010. The Horn River
Basin is an early-stage potential shale gas play that has not
been developed on a commercial scale. Many of our peers
are also working to develop the future potential of the area.
Limited gas pipeline infrastructure and processing capacity
in the Horn River Basin could potentially constrain early
development of the play. To ensure sufficient gathering,
processing and transportation capacity for our early
development programs, we have contracted gas pipeline
capacity of 96 mmcf/d and associated treating capacity at
the Spectra-operated Fort Nelson plant. We entered into
additional agreements that will allow us to participate in
projects that are expanding infrastructure in the region.